First Coffee for 2 February, 2006

David Sims : First Coffee
David Sims
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First Coffee for 2 February, 2006

By David Sims

The news as of the first coffee this morning, and the music is The Byrds’ “Ballad Of Easy Rider.” Hey, the ‘60s weren’t a total loss:

Today’s topic is “Gee, Why Aren’t The On-Demand CRM Vendors More Concerned About Microsoft And SAP Eating Their Lunch?”

Witness the latest gloatings ‘n’ ramblin’s from the master of the art,’s Dear Leader Marc Benioff. We business journalists love this guy the way sportswriters loved Charles Barkley, a walking quotable quote. When Barkley was asked if he had any regrets about throwing a bar patron who’d been hassling him through the front window of the bar, he said “Yeah, I regret we weren’t on the eighth floor.”

First off, they see it as a vindication of their business model.

“Fellow employees,” Benioff starts off, probably because “fellow workers!” was already taken. “First Siebel, then Oracle, then Microsoft. After months of warming up, SAP is finally expected to announce an on-demand CRM product this week. Europe’s most influential technology company is helping us make on-demand the global standard.”

NetSuite’s Zach Nelson said a while ago, “They will be too late to the party when they jump in. I don’t care how much money or how many developers they throw at the problem. But I hope they do announce on demand products… it will be the ultimate validation of what we are doing.”

And RightNow’s CEO Greg Gianforte says “These companies are simply recognizing that the hosted model we’ve been delivering more effectively than anyone else for almost a decade now is the way to go.”

Secondly, they don’t see it as much competition since the big boys can never focus on on-demand the way on-demand guys like, RightNow and NetSuite are.

“Is SAP on the defensive? Are they worried that with few customers actually using their CRM software, and making significant inroads in their customer base, their entire business model may be at risk?” Benioff writes. “For starters, they had better hope that their on-demand offering will win more fans than their on-premise solution has.”

Because for all the PR SAP throws out, and while they claim leadership in CRM, “experience suggests a different story,” Benioff says. “I have often wondered, ‘If SAP’s CRM software is any good, then why doesn’t SAP use it to manage their own customer relationships?’”

Benioff says he’s interviewed hundreds of salespeople and executives from SAP from around the world, and “each has told me the only CRM system at SAP is an executive system based on Microsoft Excel. I’m not surprised since I have never met a salesperson anywhere in the world who uses SAP CRM.”

First CoffeeSM is hereby soliciting opinions from anybody who actually uses SAP. All legitimate replies will be printed.

“The dinosaurs of the software industry can make all the noise they want to. To really come after us, they’d have to completely cannibalize their existing business. They can’t afford to do that, and Wall Street won’t let them,” Gianforte thinks.

Benioff echoes this thought: “Mustering the will to turn your back on the business model that has enriched you, your employees, and your shareholders has time and again proved far more difficult than solving technological hurdles. SAP, like Oracle and Microsoft, now risks cannibalizing its existing customer base.

Thirdly, the dedicated on-demand vendors see the very size of a Microsoft or SAP as working against them.

 “People who haven’t followed our company closely often ask, ‘Aren’t you worried? A company with the resources of SAP can bring so much to this battle,’ Benioff says. “But that’s exactly the problem. Observers tend to overestimate the creativity and innovation that entrenched technology companies can bring to a particular problem and underestimate the effect of business model conflicts that lurk behind the scenes.”

“SAP… would have to completely re-write all of its applications from scratch in order to build a multi-tenancy architecture to match ours. And, from a business perspective, they would have to replace this huge services ecosystem they’ve developed over the years that thrives on complexity and difficulty,” Gianforte notes.

Siebel’s Bruce Cleveland hinted at this problem when he said last summer “I think we’ve made our lives a bit too complex and unwieldy, which is understandable for any organization that grew as fast as we did. Our CEO, George Shaheen, has stated that simplifying our operations is one of his key priorities, and I agree that this is one area we must change. His recently announced moves to simplify our sales organization are an important step in this direction.”

Fourthly, the dedicated on-demand guys don’t see the big guys as really being able to do it any better than they do.

“Let’s state it simply,” Benioff writes: “SAP is an innovation-free company. When reporters describe the great innovators of this industry, it’s easy to identify the significant contributions of many of the leaders. For Oracle, it’s the database; for Apple, the Mac, iPod, and iTunes; for Microsoft, the PC operating system; for Intel, the microprocessor. But for SAP? I struggle to think of a single innovation that SAP has contributed. Their code is as bulky and inefficient as it is expensive and unloved by its users.”

“Can [SAP] actually afford to convert their billions of dollars in maintenance revenue into subscriptions? This classic innovator’s dilemma engenders painful internal rifts and wastes valuable time while customers’ needs languish,” Benioff says.

Gianforte agrees. “These big software companies like to take the money and run. They have no idea what it’s like to depend on a subscription model where you must satisfy your customer to get a renewal. We do. That’s why our renewal rate is 90 percent.”

Fifthly, the dedicated on-demand CRM guys think Microsoft, SAP et al really don’t understand what they’re getting into and don’t know what they’re doing.

NetSuite’s Nelson said that developing a successful web-native product “takes time, money and great software developers. NetSuite and the others [, RightNow] have been at this for seven years. It will take an upstart today at least that long to get to where we are. And of course, we won’t be sleeping during those seven years.”

“Siebel tried to sell an admittedly inferior on-demand product as an on-ramp to its on-premise system. It appears that on-ramps make road pizza out of your business model. That strategy sent an entire company slouching towards Redwood Shores this week. Will SAP make the same mistake?” Benioff asks. Gee, whuddya think, Marc?

Speaking of Microsoft Dynamics CRM 3.0, Gianforte said it has “limited-functionality solution” is designed to compete with other CRM solutions targeted at small businesses, Gianforte says, adding that while Microsoft is “late to the CRM game,” they do have “significant resources to gain market share at the low end.”

But Microsoft isn’t actually hosting the applications, their partners are and will offer single tenant hosting. “One of the breakthroughs in hosting is multi-tenancy, multiple applications on a shared set of hardware, which is the standard for successful software-as-a-service companies,” Gianforte explains. “There are no economies of scale or margin in single tenant hosting. This model was introduced in the 90’s and failed.”

“Show us a successful enterprise application software company that used the channel as its main go-to-marketing strategy? There are not any,” Gianforte says.

“Microsoft and its partners have traditionally been selling to IT. CRM needs to be sold to the business unit – and include IT,” he says. “It’s a completely different selling environment, with a whole new set of languages and needs that must be understood and used.”

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